Work Opportunity Tax Credit: How Your Business Can Qualify in 2020

If you’re a business owner, you may qualify for the Work Opportunity Tax Credit. This tax credit gives incentive to employers to hire individuals from targeted groups with significant employment barriers. It was set to expire in 2019, but a new law passed late last year continues it through December 31, 2020, so businesses can still take advantage of this valuable tax credit.

work opportunity tax credit

The amount of the tax credit businesses can claim depends on several factors including the group of employees hires, the number of hours worked, and the wages paid during the first year of employment.

Types of Employees that Qualify for the Work Opportunity Tax Credit

An employer is eligible to receive the credit for qualified wages paid to qualified members of these targeted groups:

  • Members of families receiving assistance under the Temporary Assistance for Needy Families program
  • Veterans
  • Ex-felons
  • Designated community residents
  • Vocational rehabilitation referrals
  • Summer youth employees
  • Members of families in the Supplemental Nutritional Assistance Program
  • Qualified Supplemental Security Income recipients
  • Long-term family assistance recipients
  • Long-term unemployed individuals

Employees that are not eligible:

  • Employees who are related to the employer
  • Work over 50% of the time outside of a trade or business of the employer (such as a maid working in the employer’s home)
  • Employees who’ve previously worked for the employer

work opportunity tax credit 2020Hours Required for the Work Opportunity Tax Credit

Generally, in order to receive the credit, each employee must complete a minimum 120 hours of service for the employer.

The size of the tax credit is 25% of the employee’s first year wages if the employee works between 120 and 400 hours of that year. This increases to 40% of the employee’s first year wages if the employee works more than 400 hours of that year.

Maximum Amount of Tax Credits

There are different rules and maximum credit amounts for particular groups of employees:

  • $2,400 for the first-year wages of each employee
  • $4,800, $5,600 or $9,600 for certain veterans
  • $4,000 for long-term family assistance recipients plus a 50% credit for up to $10,000 of second-year wages, resulting in a total maximum credit of $9,000 over two years
  • $1,200 for each summer youth employee and the wages must be paid for services performed during a 90-day period between May 1 and September 15

Other Rules You Should Know About the Work Opportunity Tax Credit

  • A deduction isn’t allowed for the portion of wages equal to the amount of the Work Opportunity Tax Credit determined for the tax year
  • Other employment-related credits are normally reduced for an employee for whom a Work Opportunity Tax Credit is allowed
  • The credit is subject to the overall limits on the amount of business credits that can be taken in any tax year. A 1-year carryback and 20-year carryforward of unused business credits is allowed.

Have Questions?

Contact us today to discuss your specific situation with our team.

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